Tuesday, July 06, 2004

On Friday the General reported that the ISM index for manufacturing took a pretty substantial hit in June. Now we hear that the index for services is also trending lower.
The pace of expansion of the US service sector slowed last month according to the Institute for Supply Management.

The ISM non-manufacturing index slipped 5.3 points to 59.9 - the first reading below 60 in six months.

The figure remains above the 50 mark separating expansion and contraction but adds to evidence that the US economy is growing slower than previously thought.
Recall that the manufacturing index dropped from 62.8 to 61.1. Considering that a score of 50 is the divide between sectoral expansion and contraction, the manufacturing sector lost 13% of its expansion margin in June. Falling from 65.2 to 59.9, the services sector lost 35% of its expansion margin. Both of these are significant drops, but especially the services index.

In April the services index stood at 68.4, so in two months the services sector has lost 46% of its expansion margin. This is a rapidly cooling trend, backing up the judgement of Krugman's headline today: "Bye-Bye, Bush Boom".

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